Royal Caribbean Cruises Ltd. RCL is sailing full steam ahead. On Friday, the stock reached a new 52-week high of $242.20 before closing slightly lower at $241.49.
This milestone comes amid stellar third-quarter results and an optimistic outlook for the coming years, fueling an 18.7% surge in the stock price since the earnings announcement. The company's strong third-quarter performance exceeded expectations, driven by high demand, strong pricing, and onboard revenue growth. It achieved a significant financial milestone by transitioning to a fully unsecured capital structure, which will likely bolster its growth plans and broaden its capital allocation strategies.
Over the past year, RCL has outperformed its peers including Carnival Corporation & plc CCL, Norwegian Cruise Line Holdings Ltd. NCLH and OneSpaWorld Holdings Limited OSW. The stock has surged an impressive 126.9% compared to industry and S&P 500 gains of 31.9% and 31.2%, respectively.
RCL Price Performance
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As RCL rides high on strong fundamentals, investors are left wondering whether they should jump on board now or wait for a potential dip.
Factors Acting in Favor of RCL
The cruise industry continues to thrive, supported by a robust macroeconomic environment. Increased consumer spending on travel and leisure, especially among millennials and families, has bolstered demand for cruise vacations.
During the third quarter of 2024, RCL reported solid booking volumes across all key itineraries. It also stated a rise in consumer spending onboard and pre-cruise purchases (exceeding 2023 levels) driven by higher participation at increased prices.
The company is highly optimistic about the demand and pricing landscape for 2025. The company's new ships, existing fleet and private destinations have received a strong market response, paving the way for yield growth in 2025.
RCL’s innovative ships, such as the newly launched Utopia of the Seas, have been pivotal in attracting younger demographics and first-time cruisers. The strong response to RCL’s Icon of the Seas and the announcement of a fourth Icon-class ship set for 2027 reinforce the company’s strategy of delivering cutting-edge vacation experiences.
RCL’s investment in AI-enabled yield management tools has been a game-changer. During the third quarter of 2024, over 70% of onboard purchases were made pre-cruise, doubling the spending of those who waited until onboard. This proactive approach optimizes pricing, enhances customer engagement, and contributes significantly to revenue growth.
What Next for Royal Caribbean?
Looking ahead to 2025, RCL anticipates continued growth, with earnings expected to start with a “$14 handle.” The introduction of new ships, including the Star of the Seas and Celebrity Xcel, alongside the opening of Royal Beach Club Paradise Island, will likely bolster its portfolio.
RCL is at the forefront of innovation within the vacation industry, introducing new products and experiences, including private destinations, to fuel growth. During the third quarter of 2024, RCL announced expansions to its private destinations portfolio. These include the launch of "Perfect Day Mexico," set for 2027, and a new Silversea hotel in Puerto Williams, Chile, expected to open in the winter of 2025-2026. These additions aim to enhance guest experiences with exclusive destination options. RCL expresses optimism regarding the prospects of private destinations and anticipates it as a key driver of growth in the upcoming periods.
Upgraded 2024 Guidance Instills Confidence in RCL
The company raised its guidance for 2024. RCL expects net yields to increase 10.9-11.4% on a reported basis and 10.8-11.3% at cc on a year-over-year basis. Earlier, the company projected net yields to rise 10.4-10.9% (on a reported and constant-currency basis) year over year. Much optimism prevails on the back of new ship additions, a strong pricing environment, continued growth from onboard revenues and accelerating commercial apparatus. For 2024, the company anticipates adjusted EPS to be in the range of $11.57-$11.62, up from the prior projection of $11.35-$11.45.
The Zacks Consensus Estimate for RCL’s 2024 and 2025 EPS has moved up 1% and 6%, respectively, in the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
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RCL Returns Higher Than the Industry
Royal Caribbean’s return on invested capital (ROIC) has outperformed the industry average in the trailing 12 months. The ROIC of RCL was 16.74% compared with the industry average of 10.63%.
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The company’s impressive ROIC is a testament to its strategic initiatives and operational excellence, including optimized fleet operations, premium pricing strategies, effective cost management, and innovative investments in advanced ships and private destinations. Additionally, robust financial flexibility and strong ancillary revenue growth have collectively driven superior returns and long-term shareholder value.
RCL’s trailing 12-month return on equity is 52.92%, ahead of the industry average of 24.79%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.
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RCL’s Valuation
With a forward 12-month price-to-earnings of 17.35X, well below the industry average of 21.75X, the stock presents a potentially attractive valuation for investors.
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Technical indicators are supportive of RCL's performance. The stock is currently trading above both its 50-day and 200-day moving averages, indicating robust upward momentum and price stability.
RCL Stock Trades Above 50 and 200-Day Moving Average
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Our Thoughts
While the recent rally may tempt cautious investors to wait for a dip, the company's solid fundamentals, innovative pipeline, and optimistic 2025 outlook make it a compelling buy for those with a long-term perspective.
The company’s focus on moderate capacity growth, disciplined cost management, and yield improvement ensures sustainable shareholder value. Moreover, rising EPS estimates and technical indicators, such as trading above its 50-day and 200-day moving averages, reinforce the stock’s bullish momentum. We believe that this Zacks Rank #2 (Buy) stock is an ideal candidate for those looking to capitalize on the booming cruise industry.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Free: See Our Top Stock And 4 Runners UpCarnival Corporation (CCL) : Free Stock Analysis Report
Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report
Norwegian Cruise Line Holdings Ltd. (NCLH) : Free Stock Analysis Report
OneSpaWorld Holdings Limited (OSW) : Free Stock Analysis Report
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